Deadweight Loss (DWL)

Q=𝐴𝑃^Ԑ A=𝑄/𝑃^Ԑ
𝐷𝑊�=(𝑃_𝑚−𝑃_𝑠 ) 𝑄_𝑠 − 𝐴/((1+Ԑ) )
[ 〖𝑃 _𝑚 〗 ^((1+Ԑ))− 〖𝑃 _𝑠 〗 ^((1+Ԑ)) ]

Q6 Using the following information on price and consumption of gasoline in Enegyland for 2015, calculate the deadw

Ԑ -0.6
Ps 0.15 USD/liter
Pm 0.41 USD/liter
Qs 500 Million
International liters
Monetary
Fund:
Step 1 A Millionfor
Elasticity of damand
gasoline.
International Monetary
Step 2 DWL Fund: USD million
Subsidized gasoline price.
International Monetary
Q7 Using the same
Fund:information from Question 6, calculate the deadweight loss, but assuming a higher price elasticit
Gasoline international
price in 2014. Monetary
International
Ԑ -0.8
Fund:
Ps 0.15 USD/liter
Actual consumption.
Pm 0.41 USD/liter
Qs 500 Million liters
International Monetary
Fund:
Step 1 A Scale parameter
Million
Step 2 DWL USD million

Q8 Using the same information from Question 6, calculate the deadweight loss, but assuming a lower price elasticity
International
Monetary Fund:
Deadweight loss.
Ԑ -0.4
Ps 0.15 USD/liter
Pm 0.41 USD/liter
Qs 500 Million liters

Step 1 A Million
Step 2 DWL USD million
 Pm= Market price;
Ps= Subsidized price;
Qs= Actual consumption of fuel;
A= Scale parameter;
Ԑ= Price elasticity of demand for fuel

015, calculate the deadweight loss, assuming a price elasticity of demand for gasoline of -0.6.

g a higher price elasticity of demand for gasoline: -0.8.

g a lower price elasticity of demand for gasoline: -0.4.

 Deadwight Loss (DWL)

Q=𝐴𝑃^Ԑ A=𝑄/𝑃^Ԑ

𝐷𝑊�=(𝑃_𝑚−𝑃_𝑠 ) 𝑄_𝑠 − 𝐴/((1+Ԑ) )

[ 〖𝑃 _𝑚 〗 ^((1+Ԑ))− 〖𝑃 _𝑠 〗 ^((1+Ԑ)) ]

Q10 Using the following information on price and consumption of gasoline for 6 six countries in
2013, calculate the deadweight loss, assuming for every country a price elasticiity for
gasoline demand of -0.8. The supply cost for gasoline was 0.94 per liter in 2013. For which
country was the gasoline deadweight loss the highest?

Gasoline
Step 1 Step 2
Price Consumption Scale parameter (A) Deadweight Loss (DWL)
(USD/liter) (Millions of liters)
(Millions) (USD Millions)

Algeria 0.3 3,830.0

Egypt 0.2 4,526.4
Kuwait 0.3 2,872.5
Indonesia 0.5 30,988.3

Q11 Using the following information on price and consumption of diesel for 6 six countries in
2013, calculate the deadweight loss, assuming for every country a price elasticiity for
gasoline demand of -0.7. The supply cost for diesel was 1.04 per liter in 2013. For which
country was the gasoline deadweight loss the highest?

Diesel
Step 1 Step 2
Price Consumption Scale parameter (A) Deadweight Loss (DWL)
(USD/liter) (Millions of liters)
(Millions) (USD Millions)

Algeria 0.2 8791.6 2570.9 -4013.9

Egypt 0.2 10837.2 3006.9 -5179.2
Kuwait 0.2 3177.2 1007.9 -1342.6
Indonesia 0.5 34178.9 22204.1 -3721.7
 Pm= Market price;
Ps= Subsidized price;
Qs= Actual consumption of fuel;
A= Scale parameter;
Ԑ= Price elasticity of demand for fuel

Q12 Using the following information on Nominal GDP in 2013, calculate the total fuel subsidies
loss (DWL), and the DWL as % of GDP for each country. For which country is the total dead
largest as % of GDP ?

Total Fuel Products

Nominal GDP Total Fuel Subsidies Deadweight Loss
(USD, Billions) Deadweight Loss as % of GDP

(USD Millions)
Algeria 209.7 4013.9 1914.07%
Egypt 285.4 5179.2 1814.46%
Kuwait 174.2 1342.6 770.83%
Indonesia 914.6 3721.7 406.94%
013, calculate the total fuel subsidies deadweight
y. For which country is the total deadweight loss the
 Measurement of Pre Gap

The following table provides the retail price of diesel (in local currency) and the exchange rate against the US dollar for Br
We assume, for the sake of simplicity, that transport and distribution margins are equal to 0.20 USD.

Note: Remember to convert the retail price of diesel in local currency to dollar prices using the exchange rate.

Retail price of diesel (local currency/Liter) Exchange rate against US dollar

Brazil India Brazilian Real Indian Rupee

2001 0.84 16.55 2.35 47.19

2002 1.04 17.73 2.92 48.61
2003 1.45 19.90 3.08 46.58
2004 1.50 23.27 2.93 45.32
2005 1.75 28.21 2.43 44.10
2006 1.88 31.43 2.18 45.31
2007 1.88 30.47 1.95 41.35
2008 2.04 33.29 1.83 43.51
2009 2.06 31.87 2.00 48.41
2010 2.00 37.61 1.76 45.73
2011 2.03 39.61 1.67 46.67
2012 2.09 42.96 1.95 53.44
2013 2.32 50.33 2.16 58.60
2014 2.51 55.99 2.35 61.03
ainst the US dollar for Brazil and India, as well as the international price of diesel.

xchange rate.

International price of Price gap for diesel(USD/Liter)

diesel (USD/Liter)

Brazil India

0.20 -0.36 -0.05

0.19 -0.37 -0.03
0.23 -0.44 0.00
0.33 -0.38 -0.02
0.47 -0.45 -0.03
0.52 -0.54 -0.03
0.57 -0.59 -0.03
0.77 -0.54 -0.20
0.44 -0.79 0.02
0.57 -0.77 0.05
0.79 -0.63 -0.14
0.81 -0.46 -0.21
0.79 -0.48 -0.13
0.72 -0.55 0.00
 Measurement of Pre-tax Subsidies

The following table provides data on international prices of diesel and gasoline and daily consumption of fuel produ
of gasoline and diesel are equal to 0.20 USD per liter.

Convert retail prices to US dollar

Retail price of gasoline in peso
prices Retail price of gasoline in USD

Retail price of diesel in peso

Retail price of diesel in USD

Multiply by 365 to obtain Daily consumption of gasoline (millions of liter)

annual consumption
Daily consumption of diesel (millions of liter)

International price of gasoline (USD/liter )

International price of diesel (USD/liter )

Exchange rate (peso/USD)

Transport and distribution Calculation of the price gap (USD/Liter)

margins are equal to 0.20 USD per
liter Price gap for gasoline
Price gap for diesel

Calculation of pre-tax subsidies (USD)

Pre-tax subisdies for gasoline
Pre-tax subisdies for diesel
Total pre-tax subsidies
consumption of fuel products in Energyland over the period. We assume that transport and distribution margins.

2005 2006 2007 2008 2009 2010 2011 2012

2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50

0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25

2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20

1.40 1.53 1.66 1.81 1.98 2.15 2.35 2.60

0.90 0.99 1.09 1.20 1.32 1.45 1.59 1.80

0.42 0.48 0.54 0.65 0.43 0.54 0.73 0.74

0.47 0.52 0.57 0.77 0.44 0.57 0.79 0.81

10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

0.37 0.43 0.49 0.60 0.38 0.49 0.68 0.69

0.47 0.52 0.57 0.77 0.44 0.57 0.79 0.81

0.5 0.7 0.8 1.1 0.8 1.1 1.6 1.8

0.4 0.5 0.6 0.9 0.6 0.8 1.3 1.5
0.9 1.2 1.4 2.0 1.3 1.9 2.9 3.3
2013

2.63
0.22

2.10
0.18

2.60
1.80

0.72
0.79

12.5

0.70
0.82

1.8
1.5
3.3
The Pass-through Approach

The tables below provide information on the prices of gasoline and diesel as well on the international prices of
Note: Use the exchange rate to convert the retail price of gasoline and diesel into dollar prices

Country Year Retail price (LC/Liter)

Gasoline USD Diesel USD

2009 0.62 0.62 0.65

United States
2013 0.93 0.93 1.04

2009 1.16 1.61 1.01 1.40

European Union
(Weighted average)
2013 1.57 2.09 1.45 1.93

2009 0.06 0.21 0.06 0.21

Kuwait
2013 0.07 0.25 0.06 0.21

2009 1.33 0.24 1.10 0.20

Egypt
2013 1.36 0.20 1.10 0.16

2009 0.47 0.44

International
Price (USD/Liter)
2013 0.77 0.79
as well on the international prices of gasoline and diesel during the period 2009-2013.
sel into dollar prices

Exchange Rate Description of the pricing of fuel products Pass-through between 2009 and 2013
(LC/US$)
Gasoline

1.00 United States 1.03

Prices of fuel products are freely determined.
The level of fuel taxation is low and consists
mainly of specific taxes.
1.00 European Union 1.61

0.72 Kuwait 0.14

Prices of fuel products are freely determined.
The level of fuel taxation is high and consists
mainly of ad-valorem taxes.
0.75 Egypt -0.14

0.29
Fuel prices have been fixed for many years. They
are adjusted on ad-hoc basis.
0.28

5.54
Fuel prices are regulated by the government.
They are adjusted on ad-hoc basis.
6.87
009 and 2013

Diesel

1.11

1.52

0.00

0.20